Fossil Group(FOSL 3.43%) reported results for the second quarter of 2025 on August 13, surpassing expectations with adjusted operating income of $4 million, gross margin of 57.4%, and cost reductions driving a $32 million year-over-year reduction in SG&A expense. Management raised full-year 2025 guidance, now targeting breakeven to slightly positive adjusted operating margins (non-GAAP), and announced a comprehensive $150 million debt refinancing extending maturities to 2029. The analysis below explores the implications of key turnaround progress, improvements in channel profitability, and product strategy for long-term investors.

Gross margin expansion drives FOSL turnaround progress

Gross margin expanded 480 basis points year-over-year to 57.4% in the second quarter, supported by an exit from connected watches, improved product costing, and lower freight costs. Management signaled the third consecutive quarter of improved gross margin, reporting 57.4%, with adjusted operating income swinging from a $17 million loss to a $4 million profit compared to the prior year.

"The year-over-year increase primarily reflects higher product margins in our core categories driven by improved product costing, our exit from connected watches, lower freight costs, and importantly, a completely refreshed philosophy with significantly lower reliance on discounts and promotions."
-- Randy Greben, Chief Financial Officer

Delivering consistent gross margin gains and improved adjusted operating income underscores management’s ability to execute structural changes, reduce channel discounting, and strengthen pricing power in a highly competitive luxury accessories market.

Fossil Group’s supply chain and cost actions enhance resilience

SG&A (selling, general, and administrative expenses) fell by $32 million, or 340 basis points as a share of sales, in the second quarter, aided by 44 fewer stores and reductions in performance marketing, with store closures occurring almost exclusively at natural lease expirations. Year-to-date SG&A savings reached $48 million through the second quarter, positioning the company to capture $100 million in full-year SG&A savings, while inventory levels dropped 12% compared to the prior year to $178 million.

"Our cost-cutting actions have generated nearly $50 million in savings in 2025, and we remain on track to capture full-year SG&A savings of $100 million. Additionally, we're continuing to evaluate incremental opportunities, including the potential sale of non-core assets."
-- Franco Fogliato, Chief Executive Officer

Sustained reduction in expense base and disciplined inventory management provide improved cash flow and greater operational flexibility to navigate uncertain consumer demand and macroeconomic volatility.

Brand momentum and wholesale initiatives fuel FOSL core growth

Management plans increased investments in experiential marketing, brand collaborations, and ambassador programs, highlighted by a worldwide campaign launch with Nick Jonas; double-digit growth in traditional watch sales was achieved in the Americas, and licensing partnerships with Kors and Armani delivered wholesale growth outside China. The company’s shift away from promotion-driven e-commerce supports traffic quality, higher average unit retail (AUR), and elevated brand equity.

"We are doubling down on investing in store presentation for this year. The projects are really taking live now, with a lot of new fixtures delivered to our accounts globally, as well as we are doubling down on activities from a marketing perspective. And I will mention the pretty soon launch of the Nick Jonas collaboration, which we are excited about, hitting our wholesale partners globally."
-- Franco Fogliato, Chief Executive Officer

By revitalizing its core brand proposition and leveraging global wholesale partner relationships, Fossil Group is positioned to capture renewed demand trends among younger consumers and broaden its international market footprint, despite continued weakness in China.

Looking Ahead

Fossil Group raised its full-year 2025 outlook, now projecting a mid-teens percentage sales decline (including a $40 million retail closure impact) but breakeven to slightly positive adjusted operating margins, compared to prior guidance of a low-single-digit negative adjusted operating margin. Management expects gross margins in the mid- to upper-50% range for the year, with third-quarter margins pressured by royalty minimum shortfalls but a return to positive adjusted operating income (non-GAAP) in the fourth quarter. The company plans 45 to 50 store closures in 2025 and anticipates completing its bond exchange and refinancing initiatives by year-end.